The Authorities' Debt "Remembered"

Child's Allowance in Bonds

By selling business space and issuing of bonds, the Government of Serbia intends to start repaying its debt to foreign exchange depositors and subscribers to the economic revival loan, as well as to meet its outstanding obligations for child's and maternity allowances.

AIM Podgorica, July 15, 2000

(From AIM Correspondent from Belgrade)

At this week's extraordinary session, the Assembly of Serbia adopted a set of laws with a view to creating conditions for the repayment of accumulated debts of the state to its citizens. They are the result of long-year frozen foreign exchange saving deposits, as well as child's and maternity allowances unpaid to beneficiaries in the last two years. Serbia's outstanding liabilities to foreign exchange depositors, as regulated by the federal law on the repayment of foreign exchange deposits, amount to DM 3.6 billion, while the debt on account of unpaid child's and maternity allowances reached 735 million dinars.

Although these debts were not incurred yesterday, the Government of Serbia asked the Serbian Parliament to adopt these law in summary procedure. Such haste can be explained by the approaching federal and local elections, which us why the authorities are trying to improve their undermined rating in this way too. There are 735 thousand beneficiaries of child's and maternity allowances, and the average debt per beneficiary amounts to 10 thousand dinars.

Searching for sources to finance the payment of accumulated debts to citizens, the Government decided to ensure the badly needed money by selling state-owned business space and by issuing bonds which could be used as a payment instrument. Their owners will be able to use them for the payment of taxes, school textbooks, kindergarten expenses and
treatment in rehabilitation centres. The law envisages that bonds will be issued twice a year, starting with next January 1, in the total amount of 4.26 billion dinars.

By adopting these laws, the authorities have demonstrated their intention to start the repayment of accumulated state's public debt, but creditors still do not have a reason to rejoice because the money has not been secured yet and the envisaged sources are not too reliable and efficient to guarantee that it will be actually raised.

The sale of state-owned business premises, which should help pay off the money owed to foreign exchange depositors and subscribers of the loan for economic development of Serbia, has to show in practice whether enough money can be secured in that way. Vice Prime Minister, Vojislav Seselj, is optimistic and counts that in the following six months, which is the validity period of the Law on Sale of Business Premises, the sale could help the repayment of one third of the total foreign exchange debt.

This is not the first time that the attempt has been made to secure funds needed for the alleviation of financial and economic crisis by the sale of business premises. Almost a year ago, the Assembly of Serbia, also on the proposal of the Serbian Government, adopted a law on the sale of business premises. The idea was to secure DM 2 billion in that way, but the expectations were not fulfilled as this possibility did not attract much attention of potential buyers.

Now, the Government has decided to palm off on citizens the state property in the form of business space in order to return the foreign exchange debt and repay the loan. It remains to be seen whether this new alternative will be more fruitful than the first one. The sale of business space has another controversial dimension. Many are disputing the regime's right to sell business premises which the state came by through nationalisation, which had been carried out some fifty years ago. The owners of confiscated property, as well as their legal heirs, think that the state should give back the confiscated property, and even warned potential buyers that it would be risky for them to buy "their" business premises, because in case of change of power that property would be de-nationalised, i.e. given back to its rightful owners. The persistence with which the Serbian Government is trying to secure funds by selling business space shows that it actually has no intention of carrying out any de-nationalisation.

Due to difficult economic situation and isolation, the regime is faced with severe shortage of funds and problems of investing in the economic development. Household savings are practically non-existent, while with the recently started repayment of foreign exchange debt to citizens in the amount of DM 150 per year (mostly in dinars), the authorities aim at, same as with the Law on the Sale of Business Premises, restoring the lost confidence. Queues in front of banks are huge, there is not enough money and the whole campaign is going rather sluggishly. Because of the non-existent voluntary savings, the Government was forced to introduce compulsory savings by taking one to six per-diems (depending on the level of their income) from the employees and pensioners for the financing of reconstruction.

The sale of bonds, as well as of business premises, does not guarantee that the projected amount of money will be collected. The legislator has envisaged an incentive for firms which decide to buy bonds offering them at 20 percent lower price. An additional concession is envisaged with the payment of taxes. If taxes are paid in bonds, it is then the firm has to cover only one half of its tax burden. Despite such major incentives, it is still uncertain what interest will enterprises show for honouring their dues to the state in this way. Similar facilities existed even before, but the republican budget was not replenished more quickly. Many firms still do not pay either taxes or contributions.

Firms whose services citizens will be able to pay with bonds, are also worried. Kindergartens are already wondering how to procure food and cover their expenses if the citizens give them bonds instead of money.

Public enterprises which are property of the state of Serbia have come under criticism. They have been restricted in using their funds. From now on they must first obtain the Government's approval for sponsoring. According to the Government, individual public enterprises have abused this mechanism of sponsorship by "buying" sports clubs and similar, for shorter or longer term. This regulation was adopted under the pressure of the Radicals, and the President of the Serbian Radical Party asked that public enterprises be forced to hand over part of their profits to the state, under the explanation that they are anyway state-owned and should therefore give something back in return for the preferential treatment they get from the state.

Ratomir Petkovic

(AIM)